ACG 2021 Chapters 1-4 Exam 1 with all Correct & 100%
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The revenue recognition principle dictates that revenue should be recognized ✔Correct
Answer-when the performance obligation is satisfied.
In Year 1, Costello Company performed work for a customer and billed the customer $14,000. In
Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the
company incurred $6,000 of wage expense, but it did not pay the employees until Year 2. If
Costello Company uses the accrual-basis of accounting, then it will report ✔Correct Answer-
revenue of $14,000 and expense of $6,000 in Year 1.
The following is information is from Clarke Corporation's financial records for the current fiscal
year.
i. Cash received from customers, $150,000
ii. Revenue earned, $195,000
iii. Cash paid for wages, $85,000
iv. Wage expense incurred, $90,000
v. Cash paid during the current year for computers that will be used for 3 years, $24,000
vi. Depreciation expense, $8,000
vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $50,000
viii. Interest incurred on debt, $5,000
ix. Cash paid for supplies, $3,000
x. Supplies expense incurred, $2,000
What is the company's net income for the current year using the cash-basis of accounting?
✔Correct Answer-$38,000
The cash-basis of accounting recognizes revenues in the year cash is collected from customers
regardless of when the performance obligation is satisfied and it recognizes expenses in the year
they are paid regardless of when they are incurred.
Net income using the cash-basis = Cash collected from customers - cash paid for expenses
incurred
Net income using the cash-basis = $150,000 - 85,000 - 24,000 - 3,000 = $38,000
adjusting entries ✔Correct Answer-are needed to ensure that the expense recognition
principle is followed
year-end adjusting entries for prepaid expenses ✔Correct Answer-decrease assets and
increase expenses
On September 1, Crestview Company purchased equipment for $25,000. The equipment's
estimated salvage value is $3,400. The machine will be depreciated using straight-line
, depreciation and a four year life. If the company prepares annual financial statements on
December 31, the appropriate adjusting journal entry to make on December 31 of the first year
would be a ✔Correct Answer-$1,800 debit to Depreciation Expense and a $1,800 credit to
Accumulated Depreciation.
Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (25,000 - 3,400)/4 =
$5,400 per yearThe correct adjusting entry to record depreciation for 4 months (i.e., September
1 through December 31) is $5,400 per year x 4/12 = $1,800.The year-end adjusting entry to
record depreciation includes a debit to Depreciation Expense and a credit to Accumulated
Depreciation.
On April 1, Mesa Verde, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance
was debited for the entire amount. On December 31, when the annual financial statements are
prepared, the appropriate adjusting journal entry would be a ✔Correct Answer-$3,150 debit
to Insurance Expense and a $3,150 credit to Prepaid Insurance.
This entry correctly adjusts the accounts to recognize that six months of the 36 month policy
have expired and are recorded as expense.Monthly rate = $12,600/36 = $350 per
month.Expense the amount for Apr. 1 through Dec. 31: $350 x 9 = $3,150.
Bonita Realty Management Co. received a check for $30,000 on September 1, which represents
a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue
was credited when the realty company collected the rent. Financial statements are prepared on
December 31. The appropriate year-end adjusting journal entry that the realty company must
record for the first year would be a ✔Correct Answer-$10,000 debit to Unearned Rent
Revenue and a $10,000 credit to Rent Revenue.
The revenue earned from September 1 through December 31 = 30,000 x 4/12 = 10,000. The
year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases the
amount of revenue earned. Debit the Unearned Revenue account to decrease it and credit the
Revenue account to increase it.
The year-end trial balance for Beltway Corporation appears as follows:
Beltway Corporation
Trial Balance
December 31
Debit Credit
Cash$ 300
Accounts Receivable500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Verified Answers |Latest Version |Already Graded A+
The revenue recognition principle dictates that revenue should be recognized ✔Correct
Answer-when the performance obligation is satisfied.
In Year 1, Costello Company performed work for a customer and billed the customer $14,000. In
Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the
company incurred $6,000 of wage expense, but it did not pay the employees until Year 2. If
Costello Company uses the accrual-basis of accounting, then it will report ✔Correct Answer-
revenue of $14,000 and expense of $6,000 in Year 1.
The following is information is from Clarke Corporation's financial records for the current fiscal
year.
i. Cash received from customers, $150,000
ii. Revenue earned, $195,000
iii. Cash paid for wages, $85,000
iv. Wage expense incurred, $90,000
v. Cash paid during the current year for computers that will be used for 3 years, $24,000
vi. Depreciation expense, $8,000
vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $50,000
viii. Interest incurred on debt, $5,000
ix. Cash paid for supplies, $3,000
x. Supplies expense incurred, $2,000
What is the company's net income for the current year using the cash-basis of accounting?
✔Correct Answer-$38,000
The cash-basis of accounting recognizes revenues in the year cash is collected from customers
regardless of when the performance obligation is satisfied and it recognizes expenses in the year
they are paid regardless of when they are incurred.
Net income using the cash-basis = Cash collected from customers - cash paid for expenses
incurred
Net income using the cash-basis = $150,000 - 85,000 - 24,000 - 3,000 = $38,000
adjusting entries ✔Correct Answer-are needed to ensure that the expense recognition
principle is followed
year-end adjusting entries for prepaid expenses ✔Correct Answer-decrease assets and
increase expenses
On September 1, Crestview Company purchased equipment for $25,000. The equipment's
estimated salvage value is $3,400. The machine will be depreciated using straight-line
, depreciation and a four year life. If the company prepares annual financial statements on
December 31, the appropriate adjusting journal entry to make on December 31 of the first year
would be a ✔Correct Answer-$1,800 debit to Depreciation Expense and a $1,800 credit to
Accumulated Depreciation.
Straight-line annual depreciation per year = (Cost - Salvage value)/Life = (25,000 - 3,400)/4 =
$5,400 per yearThe correct adjusting entry to record depreciation for 4 months (i.e., September
1 through December 31) is $5,400 per year x 4/12 = $1,800.The year-end adjusting entry to
record depreciation includes a debit to Depreciation Expense and a credit to Accumulated
Depreciation.
On April 1, Mesa Verde, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance
was debited for the entire amount. On December 31, when the annual financial statements are
prepared, the appropriate adjusting journal entry would be a ✔Correct Answer-$3,150 debit
to Insurance Expense and a $3,150 credit to Prepaid Insurance.
This entry correctly adjusts the accounts to recognize that six months of the 36 month policy
have expired and are recorded as expense.Monthly rate = $12,600/36 = $350 per
month.Expense the amount for Apr. 1 through Dec. 31: $350 x 9 = $3,150.
Bonita Realty Management Co. received a check for $30,000 on September 1, which represents
a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue
was credited when the realty company collected the rent. Financial statements are prepared on
December 31. The appropriate year-end adjusting journal entry that the realty company must
record for the first year would be a ✔Correct Answer-$10,000 debit to Unearned Rent
Revenue and a $10,000 credit to Rent Revenue.
The revenue earned from September 1 through December 31 = 30,000 x 4/12 = 10,000. The
year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases the
amount of revenue earned. Debit the Unearned Revenue account to decrease it and credit the
Revenue account to increase it.
The year-end trial balance for Beltway Corporation appears as follows:
Beltway Corporation
Trial Balance
December 31
Debit Credit
Cash$ 300
Accounts Receivable500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
